Source: Elisabeth Buchwald, CNN; Translated by: 0xjs@ Jinse Finance
What do a mountainside resort and an economist have in common? Almost nothing, if it weren’t for the invitation-only summit hosted annually by the Federal Reserve Bank of Kansas City at Jackson Lake Lodge in a valley in the Teton Mountains outside Jackson Hole, Wyoming.
It’s that time of year again. Over the next three days, top economists from around the world will gather to speak to journalists and investors eager to learn about the economic outlook. But you don’t need an invitation to hear what will undoubtedly be the hot topic in Silicon Valley: Federal Reserve Chairman Jerome Powell will deliver a keynote address at 10 a.m. ET on Friday.
His speech is crucial not only to the U.S. economy, but also to Federal Reserve officials.
Last month, the U.S. unemployment rate unexpectedly jumped to 4.3%, the highest level since October 2021. Meanwhile, employers hired just 114,000 new workers in July, the second-lowest monthly increase since December 2020. The disappointing data has raised concerns among some that the economy could soon fall into a recession — or, worse, is already in one.
The Fed has been heavily criticized for deciding not to cut interest rates at its last meeting, two days before the July jobs report was released. The central bank is widely expected to cut rates in September as the labor market cools and inflation is just above the Fed's 2% target. But some economists worry that central bankers are waiting too long and that the delay could exacerbate labor market slack.
New data released Wednesday by the Bureau of Labor Statistics did little to calm those concerns. Although not yet final, the agency's annual review of employment data showed 818,000 fewer jobs in March than initially reported.
As a result, more investors now believe the Fed may opt to cut rates by half a percentage point next month , rather than the more common quarter a percentage point, according to fed funds futures data. In addition, the data also increase the likelihood that the Fed will cut rates more than once this year.
Where does Powell stand on this discussion? We’ll find out on Friday.
Review of Jackson Hole Conference over the years: It’s not just talk
In 2023, investors interpreted Powell's speech at Jackson Hole as a signal that the Fed was done raising rates , even though Powell said that rate hikes were still possible. The market rose, with the Dow Jones Industrial Average rising 241 points, or 0.7%. Their interpretation was ultimately correct - the Fed has not raised rates since July of last year.
Powell's 2022 Jackson Hole keynote speech sparked the exact opposite reaction. It showed that officials will not hesitate to fight inflation, even if it means inflicting "pain" on households and businesses (Powell said). The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all fell at least 3% that day.
After the Jackson Hole meeting in 2023, the Fed subsequently met and raised interest rates twice, each time by three-quarters of a percentage point.
Powell wasn’t the only U.S. central banker to use the Jackson Hole meeting as an opportunity to preview changes in monetary policy.
For example, in 2010, then-Fed Chairman Ben Bernanke hinted that the central bank might further ease financial conditions as the economy recovered from the Great Recession, saying that "there are policy options to provide additional stimulus." A few months after Bernanke spoke at Jackson Hole, he unveiled a brand-new bond-buying program designed to lower interest rates and stimulate the economy after the financial crisis. This move is now known as QE2, short for quantitative easing.
Later, Bernanke said at the 2012 Jackson Hole conference that a stagnant labor market was a "serious problem." The market initially fell after Bernanke's speech but ended the day higher. Shortly after the Jackson Hole conference, the Fed launched QE3 .
In 2016, then-Fed Chair Janet Yellen, now Treasury Secretary, used her Jackson Hole speech to prepare the market for further rate hikes by saying she believed "the case for an increase in the federal funds rate has strengthened in recent months." Starting in December 2016, the Fed raised rates roughly every three meetings until 2018.
What Powell might do
Economists expect Powell’s speech to strike a dovish tone: that is, the central banker will favor taking steps such as lowering interest rates to stimulate the economy to offset weakness, rather than focusing on lowering inflation.
The question is just how dovish Powell’s stance will become.
Citigroup economists said in a report on Wednesday that the mere mention of Wednesday's sharp downward revision to employment data suggests a 0.5 percentage point rate cut is likely at the September meeting. The bank's economists predict 0.5 percentage point rate cuts at both the September and November meetings.
Goldman Sachs economists expect Powell to express "greater confidence in the inflation outlook" and may say officials are closely watching labor market data while noting the Fed's "ability to support the economy if necessary."
Goldman Sachs economists said in a note earlier this week that such comments would solidify a rate cut in September, but the question of the size of the cut remains undecided until the August jobs report, due on Sept. 6.
While they don’t expect Powell to say anything suggesting that the current level of interest rates is “not appropriate for the progress we’ve made on inflation,” if he did say that, it would increase the likelihood of a further rate cut in September and provide a case for further rate cuts at future meetings.
Powell isn’t the only Fed official in attendance at Jackson Hole, though. A host of other central bank heavyweights, including Kansas City Fed President Jeffrey Schmid and Atlanta Fed President Rafael Bostic, will be in attendance for impromptu media interviews that could be more informative about the economic outlook than Powell’s speech.
